Before the FEDERAL COMMUNICATIONS COMMISSION Washington, DC 20554 In the Matter of Implementation of Section 103 of the STELA MB Docket No. 15-216 Reauthorization Act of 2014 Totality of the Circumstances Test COMMENTS OF THE AMERICAN TELEVISION ALLIANCE Mike Chappell Michael Nilsson THE AMERICAN William M. Wiltshire TELEVISION ALLIANCE John R. Grimm 1155 F Street, N.W. HARRIS, WILTSHIRE & GRANNIS LLP Suite 950 1919 M Street, N.W. Washington, DC 20004 The Eighth Floor (202) 333-8667 Washington, DC 20036 (202) 730-1300 Counsel for the American Television Alliance December 1, 2015 SUMMARY Local broadcasters, often so quick to claim credit for public service, increasingly fail the majority of their viewers who happen to watch them over cable, satellite, or IPTV. They have blacked out their signals almost 200 times so far this year, up from only eight times five years ago. They have raised rates unsustainably. And they have otherwise behaved in a manner inconsistent both with a functioning market and with the public interest mantle they claim for themselves. As more online distributors enter the market, this will only get worse. Fortunately, this proceeding—in which Congress directed the Commission to “commence a rulemaking” and to examine the “substantive proposals” occurring in retransmission consent negotiations—gives the Commission the opportunity to act. Below, the American Television Alliance proposes general and specific changes to the relevant test and describes the Commission’s ample authority to make such changes. I. THE EXISTING GOOD FAITH RULES NO LONGER PROTECT THE PUBLIC FROM HARM. Broadcasters claim a special, privileged place in the nation’s communications landscape. They do so because they believe—and would like the public to believe—that they provide a critical, local service that cannot be duplicated by other means. This is how they describe themselves: “We turn to local TV . stations to follow the inspiring events that have shaped our nation . and to mourn together when tragedy befalls our communities, governments and leaders . That is the public good we provide . that is our mission . and at the heart of what we do every day.” Broadcast regulation largely reflects this worldview. It provides broadcasters extraordinary privileges—from free spectrum to special exclusivity protections to mandatory carriage—all in the name of furthering the broadcasters’ public interest mission. And yet in i return, broadcasters conduct retransmission consent negotiations in a way that increasingly furthers their own interest at the expense of the public interest. Blackouts. In 2010, just five years ago, there were only eight blackouts. In the first ten months of this year alone, broadcasters have blacked out their programming nearly 200 times. By our count, blackouts affected more than 13 percent of MVPD subscribers this year—or one out of every eight subscribers. This represents almost 200 times in which viewers lost programming they want and expect. It represents almost 200 times in which broadcasters pressured viewers to switch from the MVPD of their choice. And it represents almost 200 times that broadcasters failed in their public interest obligations to the large majority of viewers who happen to receive their signals through MVPDs. This figure, of course, does not count the many more instances of threatened blackouts. Economics tells us that breakdowns in television negotiations should be exceedingly rare. Common sense should tell us that nearly 200 such breakdowns means something has gone very wrong. Price increases. Broadcasters have increased total retransmission consent fees more than 22,000 percent since 2005, according to publicly available data. They have increased fees 40 percent per year over the last three years, compared to 5 percent annual increases for cable and satellite video services. And practically everybody expects rates to continue to increase. SNL Kagan, for example, predicts that retransmission consent fees will total more than $10 billion in 2020—an estimate that assumes, perhaps incorrectly, that growth rates will decline significantly during that time. Broadcaster conduct. Broadcasters employ a variety of negotiating tactics inconsistent with a functioning marketplace. They black out their websites during retransmission consent disputes. They require MVPDs to purchase unwanted programming—sometimes even ii “programming to be named later”—as a condition of retransmission consent. They engineer blackouts immediately prior to “marquee events” such as the NFL playoffs. They cede negotiating rights to others, artificially increasing their already formidable market power. They seek to limit the equipment and technology deployed by MVPDs to provide subscribers services they are legally entitled to enjoy. They refuse to allow MVPDs to provide subscribers a modicum of relief from blackouts with out-of-market signals. They seek to charge for subscribers who receive their signals over the air. And they engage in a variety of other harmful conduct. All of this ought to lead the Commission to act, for at least two reasons. First, circumstances have deteriorated markedly since the last time the Commission examined the issue. Things will only get worse as online distributors enter the retransmission consent market, as such entry will give the broadcasters even more leverage in negotiations. Second, and more fundamentally, broadcasters cannot have it both ways. They can claim—and many do—that they are merely distributors of content “like any other.” They can even claim the right to withhold their content as they please regardless of the consequences. They cannot, however, then simultaneously claim special privileges as servants of the public good. If the Commission is to honor the broadcasters’ assertion that they perform a public interest mission, then the rules governing broadcasters’ distribution above all ought to ensure that signals remain available to all Americans without the fear of disruption. Broadcasters can, of course, always choose to free themselves of these responsibilities. They could, for example, stop broadcasting and offer their programming as cable networks. The upcoming incentive auction gives them the perfect opportunity to do so. For so long as they iii wish to remain broadcasters, however, they cannot complain when policy-makers seek to protect the public from their worst excesses. II. THE COMMISSION SHOULD MODIFY ITS GOOD FAITH RULES. In directing the Commission to institute this proceeding, Congress recognized that the time has come to act. ATVA, in turn, appreciates the Commission’s efforts to move forward on issues that matter to the American viewer. The Commission should improve the rules governing retransmission consent as follows: General Changes. The Commission should make two general changes to its totality of the circumstances test. 1. The Commission should explicitly consider the public interest—not just the interests of the parties—in making good faith determinations. 2. The Commission should more actively consider labor law precedent, which has grappled with the challenge of requiring negotiation in good faith for decades (and from which the Commission “derived” the good faith rules in the first place). For example, labor law prohibits an employer from changing terms and conditions of employment after a collective bargaining agreement has expired if the employer has not bargained to “impasse”—defined as circumstances in which both parties are no longer open to compromise. If, instead of engaging in good faith bargaining, an employer “runs out the clock” in order to pursue unilateral action when the contract expires, this violates the good faith bargaining requirement of the labor laws. These doctrines illuminate the all- too-common circumstance in which a broadcaster imposes a blackout despite an MVPD offer to continue negotiating and true-up fees upon reaching agreement. In ATVA’s iv view, a blackout in such circumstances constitutes powerful evidence that the broadcaster has been attempting to “run out the clock” all along. Specific Conduct. The Commission should also find that seven specific sets of conduct constitute per se violations of the Commission’s rules—or, at the very least, presumptively violate the totality of the circumstances test. 1. The Commission should prohibit online blocking. 2. The Commission should prohibit forced bundling. Here again, labor law is instructive. It prohibits one party from insisting on bargaining about “non-mandatory subjects” (that is, subjects other than the “terms and conditions of employment” for which good faith bargaining is statutorily required). Under this doctrine, a broadcaster could negotiate about bundling with an MVPD’s consent, but could not insist on such bargaining. 3. The Commission should restrict blackouts prior to marquee events. 4. The Commission should restrict broadcasters from ceding negotiation rights to others 5. The Commission should prohibit broadcasters from insisting on equipment or technology restrictions. 6. The Commission should prohibit broadcasters from restricting out-of-market signals during retransmission consent disputes. 7. The Commission should prohibit broadcasters from charging for subscribers that receive signals other than from the MVPD. III. THE COMMISSION HAS LEGAL AUTHORITY TO MODIFY ITS GOOD FAITH RULES. The Commission has ample legal authority to adopt ATVA’s suggestions. First, STELAR itself gives the Commission new, specific authority to delineate practices that presumptively fail